Trade Wars: Tariffs, Restrictions and Retaliation

By Daniel Brouse

International Economics 101

What do you think of when you hear the term "trade war"?
The costs and benefits to society are very similar to traditional warfare.

1) Financial Cost. A war is expensive. In a trade war, huge tariffs are placed on the purchase of imports. A tariff is a sales tax paid for by the citizen. Quite often this tax can be as high as 45% or the product even banned altogether. The tax is paid by the citizen to their government. The financial loss from the in-efficiency of paying large taxes is a tremendous burden on the country's own citizens. In addition, there are usually large costs to the private sector. These costs can include high interest rates, inflation and loss of value to liquid assets. The standard of living declines.

2) Casualties / Loss Of Life. Millions of people are maimed or die in a trade war. The easiest examples in recent history would be the impacts on baby formula or pharmaceuticals. Hundreds-of-thousands of children, as well as, adults in need of medication died because these items were targeted in trade wars. Another example is maiming children by targeting vitamin A (causing childhood blindness.) Typically, trade wars impact the most vulnerable first - babies, the sick and the elderly.

Protectionism is the theory or practice of shielding a country’s domestic industries from foreign competition by restricting imports. There are no known benefits to protectionism. The costs of protectionism include being financially destructive, negatively impacting health and wellness, as well as, causing death.

Following are a few examples:

Trade restrictions are often put on agricultural products in an effort for a country to protect its farmers. The result is to harm the general population. Rice is a good example of a crop that is widely protected by trade restrictions. USA Rice states, “The barriers range from ongoing phytosanitary restrictions by Colombia on imports of U.S. paddy rice; a discriminatory and very complex tariff regime in the EU; the trade distorting impact of Thailand's rice support program; government management of rice imports in Japan and Taiwan; and Korea's new rice import regime.”

The United States Patent and Trademark Office stated, "Despite current interventions, vitamin A deficiency is the leading killer of children globally (2-3 million annually) and also the leading cause of childhood blindness (500,000 cases annually). Most cases arise in Asia where the staple food eaten by 3.5 billion people daily, white rice, lacks vitamin A sources typically found in meat and leafy vegetables. These deaths and blindness are preventable.”

In 2015, Golden Rice won a humanitarian award. Not only is Golden Rice more nutritious than white rice, it is also less harmful to the environment (since less of it needs to be grown.) There are numerous health benefits from Golden Rice including Beta-Carotene that provides vitamin A to children. It is estimated that millions of children’s lives could be saved and childhood blindness could be dramatically reduced.

The Trans-Pacific Partnership Agreement (TPP) would have eliminated trade restrictions on Golden Rice by the participating countries.

The Tariff Act of 1930 was signed into law on June 17, 1930 by President Herbert Hoover. The act raised U.S. tariffs on over 20,000 imported products. The tariffs imposed an effective tax rate of 60% on many of the goods. The Act also started a trade war with America’s trading partners resulting in reduced American exports and imports by more than 50% contributing to The Great Depression.

Historians estimate at least 3 million civilians died from the Great Depression in the United States, mostly young children, the elderly and women. The main causes were:

  1. malnutrition
  2. infectious disease
  3. attempted child birth
  4. starvation
  5. suicide

The shoe tax is a remnant of the Smoot-Hawley Act. United States’ shoe tariffs are 10 times higher than the average U.S. tariff rate. According to the U.S. International Trade Commission, in 2011 shoes accounted for 1 percent of merchandise imports, but provided 7.9 percent of U.S. tariff revenue.

Regressive taxes disproportionately hurt the poor. A regressive tax “imposes a greater burden (relative to resources) on the poor than on the rich.” The money paid in taxes has a larger impact on the ability of lower-income households to satisfy their basic needs, like food, clothing, healthcare and shelter.

In 2006 the WTO said scrapping the tariffs on medicines and drug ingredients would result in “effective action to improve access to medicines and medical devices needed to treat a wide variety of diseases effectively and ensure that these goods reach patients expeditiously at a lower cost.

"It is ironic that many of the countries that are in urgent need of cheap medicines also have a significant tax added to drugs and medical devices they import," said Peter Allgeier, the US ambassador to the WTO.

The National Institute of Health stated: A group of countries, including members of the European Union, Canada, the United States, Japan, Switzerland, and Norway, agreed to eliminate import tariffs on thousands of finished drugs and intermediate ingredients in the Uruguay round trade talks between 1986 and 1994. As a result, out of an average global trade in drugs worth $145bn between 1999 and 2001, $114bn was covered by the initiative. But almost $33bn is still subject to duty, the joint proposal noted.

Operation Infinite Reach was the codename for an American cruise missile strike on a pharmaceutical plant in Sudan. After helping Sudan build a pharmaceutical factory, the United States blew it up. Initially, the U.S. claimed the plant was making chemical weapons. Eventually, the U.S. admitted there was no evidence the plant was making chemical weapons. The side-effects to the local population included:

The trade disruption is estimated to have killed or maimed hundreds of thousands of people many of which were children.

For years China had stiff tariffs on imported baby formula. The lack of competition forced the price higher and the quality lower. In 2012, China’s consumer quality regulator found an “unusual amount” of mercury in baby formula produced by Yili Industrial Group Co. “At present, the country has no standards on mercury limits in milk powder. But to be responsible to consumers, the company decided to recall all related products,” said the company.

It is unclear how many children have been malnourished or poisoned due to China’s trade policy. Under free-trade agreements, such as the TPP, countries can not put tariffs on the product and the product must meet the health and safety standards of the USA.

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